Bruker Downgraded to Sell on Disappointing Q3 Outcome - Analyst Blog

Massachusetts-based scientific instruments manufacturer Bruker Corporation's (BRKR) share price slashed more than 10% to reach $18.30 at yesterday's close since the company reported disappointing third-quarter 2014 financial results on Nov 6. This dismal performance eventually compelled Zacks Investment Research to downgrade Bruker to a Zacks Rank #4 (Sell) on Nov 14.

Earnings estimates have also been mostly revised downward for fiscal 2014 and 2015, subsequent to the earnings release. Consequently, the Zacks Consensus Estimate for 2014 decreased 9% to 30 cents per share over the last 30 days. For 2015, the Zacks Consensus Estimate declined by 6.3% to 75 cents per share over the same period.

Bruker's adjusted earnings per share (EPS) of 14 cents in the third quarter missed the Zacks Consensus Estimate of 15 cents by 6.7% and were also down a huge 30% on a year-over-year basis.

Alongside, revenues of $419.8 million declined 4.4% year over year in the third quarter, missing the Zacks Consensus Estimate by 4.2%. While acquisitions and divestitures positively affected Bruker's third quarter revenues by 0.8%, foreign exchange rates adversely affected the same by 0.4%. Excluding these impacts, Bruker's organic revenues declined 4.8% on a year-over-year basis.

Bruker's adjusted gross margin contracted 90 basis points (bps) to 44.2% from the year-ago quarter equivalent, primarily driven by an overall decline in revenues compared to the prior year, the mix of products sold and the negative impact of foreign exchange rates.

Adjusted operating margin also contracted 220 bps to 8.6%, primarily owing to the revenue decline and partly due to unfavorable foreign exchange rates.

Following the discouraging third quarter results, Bruker lowered its financial guidance for 2014. The company now expects its full year 2014 revenues to range between $1.81 and $1.84 billion, representing an annualized revenue decline of 1.6% or flat results. In the earlier guidance, Bruker had projected 2014 revenues to increase in the range of 1%–2%. The Zacks Consensus Estimate for 2014 is pegged at $1.83 billion, which lies within the company's guided range.

The company also expects 2014 EPS in the range of 72–78 cents, down from the previous guidance range of 78–81 cents. The Zacks Consensus Estimate for 2014 is pegged at 75 cents, which lies within the company's guided range.

Our Take

 We are reasonably discouraged by Bruker's third-quarter 2014 financial results which missed the Zacks Consensus Estimate on both lines. The revenue decline observed in all three Bruker Scientific Instruments (BSI) operating groups was responsible for the year-over-year deterioration in the quarter's top line. Despite the company's Bruker Energy & Supercon Technologies (BEST) segment delivering double-digit growth, the overall decline in the larger BSI segment – which accounted for 91.5% of the total revenue in the quarter – nullified the benefit of the strong performance in the BEST segment. The trimmed guidance is also disappointing indicating dearth of any near-term catalyst. As a result, investors also seem to have lost their confidence in this stock's potential, which is very well reflected in the double-digit fall in the stock's price.

Zacks Rank

Currently, Bruker carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the medical sector include Acadia Healthcare Company, Inc. (ACHC), Alcobra Ltd. (ADHD) and Almost Family Inc. (AFAM). All these stocks carry a Zacks Rank #1 (Strong Buy).